Local bankers call for 'even playing field' with credit unions

PORTSMOUTH — Local bankers Rick Wallis and Dan Morrison use the term "even the playing field" when it comes to competition with credit unions.

Paul Briand

PORTSMOUTH — Local bankers Rick Wallis and Dan Morrison use the term "even the playing field" when it comes to competition with credit unions.

"It's all about leveling the playing field," said Wallis, president of Piscataqua Savings Bank in Portsmouth.

"We're happy to compete with anybody. It's just a question of fairness," said Morrison, president and chief executive officer of Optima Bank & Trust, which has branches throughout the Seacoast.

They made their comments as part of an effort by the New Hampshire Bankers Association to publicize what it and its members feel is an unfair advantage that credit unions have by being tax exempt.

The association has released a report that notes banks are required to pay both federal and state income taxes, while credit unions do not. The report also questions the status of credit unions as nonprofit, claims credit unions are not serving poorer areas, and doubts its members are part of the "common bond" that was the original charter of credit unions.

Local credit unions — and their New Hampshire Credit Union League — called the bankers' report "an old, tired argument" and noted that if the tax exempt issue is so important to banks, they too can become credit unions.

"The reasons credit unions are thriving are not due to tax exemption but because we are member owned," said Service Credit Union President and Chief Executive Officer Gordon Simmons. "We give back to our owner-members in the way of higher deposit rates, lower loan rates and lower to no fees."

The bankers association commissioned the report by Brian Gottlob of PolEcon Research.

"The primary impact of the corporate tax subsidy hasn't been greater access to financial services for low- and moderate-income individuals and underserved communities, as was its original intent," Gottlob said. "Instead, it increases credit union profits and retained earnings, providing them with the capital necessary to increase market share."

Gottlob said credit unions are now more profitable than community banks in New Hampshire and those untaxed profits are primarily used to grow credit unions and capture market share.

"The original justifications for exempting credit unions from corporate income taxes no longer appear appropriate," he said, "and policymakers must consider the impact of the subsidy on the competitive landscape for financial services."

According to Morrison, who is on NHBA's board of directors, Gottlob was not hired with an agenda. "He was surprised at how compelling the results were," Morrison said.

Morrison said banks pay 40 cents of every dollar to state and federal taxes. With credit unions paying no taxes, Morrison said they are using what he describes as a "tax subsidy" to gain market share.

And since the financial crisis that grew out of the real estate bust in 2008, banks large and small have had to deal with more regulations.

"The reality is that the regulations affect all of us, most of which don't apply to credit unions," Morrison said.

One such regulation requires banks to keep more of their capitalized assets on hand.

Service Credit Union, for example, was founded in 1957 to provide financial services for military personnel, specifically the military and civilian employees at the former Pease Air Force Base. Military service was the "common bond." That is no longer a requirement.

"They no longer have the common bond they once had," Wallis said. "It's not all credit unions we have a problem with. Some have common bonds that stick to their original mission. It's the others who have taken it in a completely different direction."

Paul Gentile, president of the N.H. Credit Union League, said changes in the interpretation of the common bond "don't change the structure of what it is. At the end of the day, it's still a not-for-profit serving the community. If that structure is so advantageous, why don't banks work to become credit unions?"

That sentiment was echoed by Simmons at Service Credit Union.

"If banks believe credit unions like Service Credit Union have special benefits, then the banks should join our ranks and convert to credit unions," he said. "However, banks are reluctant because they could not pay their board members. Credit union board members are democratically elected from the membership and are volunteers. They also would no longer be able to serve anyone."

Credit unions have a distinct field of membership, Simmons said.

"Banks would be immediately limited in how many commercial loans they can do," he said.

The bankers association study says 44 percent of community bank branches in the state (68 branches) serve New Hampshire's least wealthy counties, while only 15 percent of credit union branches (14 branches) serve similar areas.

"If credit unions are permitted to offer the same services as banks, then there must be tax equity among depository institutions and a level playing field in complying with regulatory requirements, such as CRA (Community Reinvestment Act)," said Christina Thornton, president of the state bankers association.

"Lawmakers should reject efforts to grant additional benefits to credit unions if they continue to receive an exemption from income taxes and CRA lending," Thornton continued. "More handouts to credit unions will further erode the ability of local banks to serve their communities and the state's disadvantaged populations."

In a hand-delivered letter to the House Commerce and Consumer Affairs Committee after the bankers' report was released, Gentile challenged the charge that credit unions aren't fulfilling their mission.

"As key economic contributors in their communities, New Hampshire credit unions employed over 1,726 employees and paid over $105 million in wages to those working families last year," Gentile said. "The average share balance at New Hampshire credit unions is $9,017 and the average loan balance is $14,449, both of which underscore the fact that credit unions remain true to their mission."

Any change to the credit union tax-exempt status would have to come on the federal and state levels.

"Our real goal is to educate the public as well as our legislators," he said.

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